• Draw a money market diagram, an IS/LM, and an AS / AD diagram (please label completely with relevant shift variables in parentheses) starting at an initial equilibrium point A in both diagrams (where r = ra, Y = Ya, P = Pa. etc.).
• Now discuss how the real business cycle economists (RBC) addressed this empirical reality (explain using your diagrams) that money is leading and pro-cyclical. Be specific and explain exactly why the Fed behaves the way they do (hint, storm windows) and what would happen exactly, if the Fed was passive and did nothing.At the end, please state how RBC economists explain the business cycle (recurrent fluctuations in output) as well as their thoughts on whether or not policymakers should conduct active countercyclical policy.